Retail

Consumer Sentiment In 2023 Likely To Remain Low, Says Moody's

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High interest rates, low consumer sentiment and lower purchasing power are all factors that are likely to weigh on businesses in 2023, a new report from Moody's Investors Service has said.

In the report, '2023 Outlook - Negative as financial conditions tighten, inflation hits consumers', which looked at the credit conditions for non-financial companies in the EMEA region, Moody's said that the erosion of household purchasing power is likely to reduce demand in consumer-facing industries, which will spill over into the industrial sector.

'Sectors reliant on discretionary demand will be hit hardest,' it said, noting that while government support measures have sought to improve the situation for households, rising energy and food prices have eroded this, reducing consumers' disposable incomes.

'We expect purchasing power to reduce further because seasonal energy consumption will increase in winter 2022-2023 and government support is unlikely to extend beyond spring 2023,' Moody's said.

Wage Increases

Another factor that is likely to weigh on companies' financial performance next year is rising wages, with companies under increased pressure to raise salaries in response to inflation.

In the UK, for example, labour costs for companies including grocers such as Tesco are set to rise by levels close to the inflation rate, Moody's said, which is higher than that of the euro area.

'Labour-intensive sectors including retail, hospitality, leisure and business and consumer services will suffer disproportionately but to varying degrees, while mitigants will differ by sector and geography,' Moody's said.

'These sectors are also most at risk because jobs in these industries tend to be lower-skilled and therefore lower-paid; as a result their employees are more sensitive to inflation.'

Alternative Outlook

Factors that could change Moody's outlook include a return to economic growth, it added, along with a stabilisation of interest rates and receding inflation levels.

'Key factors for a positive outlook include: economic growth is solid; interest rates moderate and inflation falls to pre-pandemic levels; earnings grow across many sectors; energy scarcity is addressed; and default rates are low,' said Moody's.

© 2022 European Supermarket Magazine – your source for the latest Retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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